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Difference between revisions of "Protecting Property and Debt in Family Law Matters"

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Protecting Property and Debt in Family Law Matters (view source)

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It can be critical to protect your share of the family property from creditors, your spouse's bankruptcy, or court orders made in other court proceedings. While it's always a good idea to consult with a lawyer if you have a family law problem, be especially sure to do so if you're not certain whether separating would be helpful or harmful.
It can be critical to protect your share of the family property from creditors, your spouse's bankruptcy, or court orders made in other court proceedings. While it's always a good idea to consult with a lawyer if you have a family law problem, be especially sure to do so if you're not certain whether separating would be helpful or harmful.


There are only a few times when a separation is a bad idea, usually when the effect of separation will limit a claim to one-half of the family property when there's a good chance that it might be more. Say, for example, that a spouse is in poor health and dying when the parties separate. The effect of separation may mean that a surviving spouse will get no more than half of the deceased spouse's estate when the spouse might have received more than half as a surviving spouse or a surviving joint tenant.
There are only a few times when a separation is a bad idea. This is usually when the effect of separation will limit a claim to one-half of the family property when there's a good chance that if you didn't separate, it might be more. Say, for example, that a spouse is in poor health and dying when the parties separate. The effect of separation may mean that a surviving spouse will get no more than half of the deceased spouse's estate when the spouse might have received more than half as a surviving spouse or a surviving joint tenant.


It is also good idea that upon separation, you take steps to revise your will to ensure that your former spouse is not the recipient of a gift from your estate that you no longer want them to receive. You should also change your life insurance beneficiary for the same reason, unless your former spouse is an irrevocable beneficiary under the terms of the policy. Lastly, you may want to consider opening a new Registered Retirement Savings Plan (RRSP) account for any contributions you want to make post separation. However, be sure not to cash in any existing RRSPs without at least informing your former spouse in advance, or upon obtaining the advice of a lawyer, as your former spouse may have a claim to the funds contained in those RRSPs. Otherwise, your former spouse may accuse you of dissipating family assets and the last thing you need at this stage of your separation is a court order freezing your financial assets.
It is also good idea that upon separation, you take steps to revise your will to ensure that your former spouse is not the recipient of a gift from your estate that you no longer want them to receive. You should also change your life insurance beneficiary for the same reason, unless your former spouse is an irrevocable beneficiary under the terms of the policy. Lastly, you may want to consider opening a new Registered Retirement Savings Plan (RRSP) account for any contributions you want to make post separation. However, be sure not to cash in any existing RRSPs without at least informing your former spouse in advance, or upon obtaining the advice of a lawyer, as your former spouse may have a claim to the funds contained in those RRSPs. Otherwise, your former spouse may accuse you of dissipating family assets and the last thing you need at this stage of your separation is a court order freezing your financial assets.
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Married spouses and unmarried spouses may file an ''entry'' on the title of the family home under the provincial ''Land (Spouse Protection) Act''. The entry will prevent a spouse from transferring, selling, leasing, or making a gift of the family home without the knowledge and approval of the spouse filing the entry. A spouse is not given notice of an entry filed against the family home under the ''Land (Spouse Protection) Act.''
Married spouses and unmarried spouses may file an ''entry'' on the title of the family home under the provincial ''Land (Spouse Protection) Act''. The entry will prevent a spouse from transferring, selling, leasing, or making a gift of the family home without the knowledge and approval of the spouse filing the entry. A spouse is not given notice of an entry filed against the family home under the ''Land (Spouse Protection) Act.''


The great thing about these entries is that you can get one whether court proceedings have started or not. This is an ideal way to protect yourself if you only have a slight concern about your relationship or the trustworthiness of your spouse, but don't have the need to begin a proceeding just yet. The downside, of course, is that entries under this act only protect the single property that is or was used as the family home.
The great thing about these entries is that you can get one whether court proceedings have started or not. This is an ideal way to protect yourself if you only have a slight concern about your relationship or the trustworthiness of your spouse, but don't have the need to begin a proceeding just yet. The downside, of course, is that entries under this ''Act'' only protect the single property that is or was used as the family home.


====Certificates of pending litigation under the ''Land Title Act''====
====Certificates of pending litigation under the ''Land Title Act''====
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<blockquote><blockquote><tt>(b) prohibit a party from terminating specified utilities for a residence;</tt></blockquote></blockquote>
<blockquote><blockquote><tt>(b) prohibit a party from terminating specified utilities for a residence;</tt></blockquote></blockquote>


Most of the time, people don't stop paying the mortgage or cut off the electricity to the former family home when they move out. However, it can be very tempting to do this when emotions are running high, when there's not enough money to pay rent at the new place plus rent for the old place, or when the BC Hydro <span class="noglossary">account</span> at the former family home is in the name of the person who needs to arrange for the electricity to be hooked up at his or her new place. The court is not likely to make orders under s. 226 when there's not enough money to pay for everything, but it will step in where someone is acting out of spite or malice.
Most of the time, people don't stop paying the mortgage or cut off the electricity to the former family home when they move out. However, it can be very tempting to do this when emotions are running high, when there's not enough money to pay rent at the new place plus rent for the old place, or when the BC Hydro <span class="noglossary">account</span> at the former family home is in the name of the person who needs to arrange for the electricity to be hooked up at their new place. The court is not likely to make orders under s. 226 when there's not enough money to pay for everything, but it will step in where someone is acting out of spite or malice.


==Financial restraining orders==
==Financial restraining orders==
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A couple of important points about this section deserve mention:
A couple of important points about this section deserve mention:


*The order ''must'' be granted on a party's application, unless the other party can show that there are enough assets that the applicant's claim to the property won't be frustrated if he or she happens to sell some of the assets.
*The order ''must'' be granted on a party's application, unless the other party can show that there are enough assets that the applicant's claim to the property won't be frustrated if they happens to sell some of the assets.
*The order can be made without the other party being given notice of the application.
*The order can be made without the other party being given notice of the application.
*The order includes not just family property but all "property at issue," which might include excluded property.
*The order includes not just family property but all "property at issue," which might include excluded property.
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===The Rules of Court===
===The Rules of Court===


Rule 12-4 of the [http://canlii.ca/t/8mcr Supreme Court Family Rules] gives the court the authority to make a general restraining order, also called an ''injunction'', to make someone to do something or not do something. The potential scope of these restraining orders is very broad, and can include, for example, a restraining order identical to that provided for in s. 91 of the ''Family Law Act'' as well as an order stopping someone from racking up debt by drawing on credit cards and lines of credit.
Rule 12-4 of the [http://canlii.ca/t/8mcr Supreme Court Family Rules] gives the court the authority to make a general restraining order, also called an ''injunction'', to make someone do something or not do something. The potential scope of these restraining orders is very broad, and can include, for example, a restraining order identical to that provided for in s. 91 of the ''Family Law Act'' as well as an order stopping someone from racking up debt by drawing on credit cards and lines of credit.


Rule 12-4 says little more that "the court can issue an injunction." A 1986 case of the British Columbia Court of Appeal, ''[http://canlii.ca/t/1q5c1 British Columbia v. Wale]'', 1986 CanLII 171 (BCCA) offers some guidance. In that case, the court held that someone applying for an injunction had to prove three things. In a family law context involving unmarried parties, these are that:
Rule 12-4 says little more that "the court can issue an injunction." A 1986 case of the British Columbia Court of Appeal, ''[http://canlii.ca/t/1q5c1 British Columbia v. Wale]'', 1986 CanLII 171 (BCCA) offers some guidance. In that case, the court held that someone applying for an injunction had to prove three things. In a family law context involving unmarried parties, these are that:


#you have a reasonable claim against assets owned by your spouse,  
#you have a reasonable claim against assets owned by your spouse,  
#your spouse has disposed of or encumbered his or her assets or is likely do so, and
#your spouse has disposed of or encumbered their assets or is likely do so, and
#the inconvenience that will be suffered by your spouse as a result of the injunction is less severe than the inconvenience you will suffer if the injunction isn't granted.
#the inconvenience that will be suffered by your spouse as a result of the injunction is less severe than the inconvenience you will suffer if the injunction isn't granted.


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#you have a reasonable claim against assets owned by your spouse,
#you have a reasonable claim against assets owned by your spouse,
#your spouse has disposed of or encumbered his or her assets or is likely do so, and
#your spouse has disposed of or encumbered their assets or is likely do so, and
#the inconvenience that will be suffered by your spouse as a result of the injunction is less severe than the inconvenience you will suffer if the injunction isn't granted.
#the inconvenience that will be suffered by your spouse as a result of the injunction is less severe than the inconvenience you will suffer if the injunction isn't granted.


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#obtain a financial restraining order under one or more of s. 91 of the ''Family Law Act'', s. 39 of the ''Law and Equity Act'' or Rule 12-4 of the Supreme Court Family Rules.
#obtain a financial restraining order under one or more of s. 91 of the ''Family Law Act'', s. 39 of the ''Law and Equity Act'' or Rule 12-4 of the Supreme Court Family Rules.


The problem here is that property that is owned only by your spouse, or by both of you as joint tenants, may be vulnerable to your spouse's creditors and in the event of his or her bankruptcy. Say, for example, your spouse has put up his or her car as collateral for a loan. You would normally be entitled to one-half the car's value as a family property, assuming the car was bought during your relationship. If your spouse defaults on the loan, the car can be seized and you could find, especially where there are few other assets, that you get no compensation for your interest in the car's value once the lender's default fees and legal fees are added on.
The problem here is that property that is owned only by your spouse, or by both of you as joint tenants, may be vulnerable to your spouse's creditors and in the event of their bankruptcy. Say, for example, your spouse has put up their car as collateral for a loan. You would normally be entitled to one-half the car's value as a family property, assuming the car was bought during your relationship. If your spouse defaults on the loan, the car can be seized and you could find, especially where there are few other assets, that you get no compensation for your interest in the car's value once the lender's default fees and legal fees are added on.


Your spouse's creditors or trustee in bankruptcy will not usually be able to seize assets held only in your name, or your interest in property as a tenant in common, unless you are responsible for your spouse's debts for some reason, like having co-signed or guaranteed a loan, or having used a secondary credit card on your spouse's <span class="noglossary">account</span>. Although, under the ''Family Law Act'' both spouses are responsible for the debts incurred during their relationship, this obligation is only between spouses and doesn't give any extra rights to creditors.
Your spouse's creditors or trustee in bankruptcy will not usually be able to seize assets held only in your name, or your interest in property as a tenant in common, unless you are responsible for your spouse's debts for some reason, like having co-signed or guaranteed a loan, or having used a secondary credit card on your spouse's <span class="noglossary">account</span>. Although, under the ''Family Law Act'' both spouses are responsible for the debts incurred during their relationship, this obligation is only between spouses and doesn't give any extra rights to creditors.
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===Third-party claims===
===Third-party claims===


Your spouse might be liable for damages or debt to someone in a court proceeding unrelated to your relationship. Your spouse may also have made a deal with someone outside the family that concerns the family property. These people may have a legitimate claim against the family property. The problem is that even though their claim or entitlement may be restricted to property owned by your spouse in his or her name alone, your interest in that property may be lost if a third party gets there first.
Your spouse might be liable for damages or debt to someone in a court proceeding unrelated to your relationship. Your spouse may also have made a deal with someone outside the family that concerns the family property. These people may have a legitimate claim against the family property. The problem is that even though their claim or entitlement may be restricted to property owned by your spouse in their name alone, your interest in that property may be lost if a third party gets there first.


As we've discussed, both spouses have a presumptive interest in the family property, including property owned only by the other spouse, as long as it qualifies as family property. A third-party claim or entitlement can result in the loss of an asset or in the loss of the value of the property. By the time the family property is divided, without separation or a restraining order, the assets might very well be in the hands of someone else and no longer be available for division.
As we've discussed, both spouses have a presumptive interest in the family property, including property owned only by the other spouse, as long as it qualifies as family property. A third-party claim or entitlement can result in the loss of an asset or in the loss of the value of the property. By the time the family property is divided, without separation or a restraining order, the assets might very well be in the hands of someone else and no longer be available for division.
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===Bankruptcy===
===Bankruptcy===


When someone declares bankruptcy, the ownership of his or her property is transferred to a trustee in bankruptcy. The trustee's job is to tally up the list of the bankrupt's debts and then sell as much of the bankrupt's property as is necessary to satisfy his or her creditors. This may include almost all property registered in the bankrupt's name, but will exclude a few specific assets like pensions, clothing, and work tools.
When someone declares bankruptcy, the ownership of their property is transferred to a trustee in bankruptcy. The trustee's job is to tally up the list of the bankrupt's debts and then sell as much of the bankrupt's property as is necessary to satisfy their creditors. This may include almost all property registered in the bankrupt's name, but will exclude a few specific assets like pensions, clothing, and work tools.


If an asset is family property, the transfer of the asset to the trustee may deprive the other spouse of any interest he or she might have in that asset and, since the owning spouse is bankrupt, he or she may not have any other financial resources from which to compensate the non-bankrupt spouse for the lost interest.
If an asset is family property, the transfer of the asset to the trustee may deprive the other spouse of any interest they might have in that asset and, since the owning spouse is bankrupt, they may not have any other financial resources from which to compensate the non-bankrupt spouse for the lost interest.


A trustee in bankruptcy cannot take property that doesn't belong to the bankrupt. If the spouses separate before the bankruptcy, only the bankrupt's one-half interest in the family as a tenant in common will go to the trustee.
A trustee in bankruptcy cannot take property that doesn't belong to the bankrupt. If the spouses separate before the bankruptcy, only the bankrupt's one-half interest in the family as a tenant in common will go to the trustee.
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*The Supreme Court of British Columbia can make an order requiring a person to do or not do something when that person accepts the authority of the court, even where that person lives outside the province.
*The Supreme Court of British Columbia can make an order requiring a person to do or not do something when that person accepts the authority of the court, even where that person lives outside the province.
*A person is considered to have accepted the authority of the court by responding to a court proceeding. Once an out-of-province respondent files a Response to Family Claim in reply to the claimant's Notice of Family Claim, he or she has accepted the jurisdiction of the court to deal with the litigation. This is called ''attorning to the jurisdiction''.
*A person is considered to have accepted the authority of the court by responding to a court proceeding. Once an out-of-province respondent files a Response to Family Claim in reply to the claimant's Notice of Family Claim, they have accepted the jurisdiction of the court to deal with the litigation. This is called ''attorning to the jurisdiction''.
*When someone attorns to the jurisdiction of the courts of British Columbia, they submit to the court's authority. The court still may not have the authority to make orders about things located outside the province, but it does have the authority to make orders about the person located outside the province. This is called "''in personam'' jurisdiction."
*When someone attorns to the jurisdiction of the courts of British Columbia, they submit to the court's authority. The court still may not have the authority to make orders about things located outside the province, but it does have the authority to make orders about the person located outside the province. This is called "''in personam'' jurisdiction."
*A court with ''in personam'' jurisdiction over a person can make orders requiring the person to do or not do things involving certain kinds of things located outside the province, such as assets like bank accounts, stocks, investment accounts, and similar assets that aren't real estate. These assets are called ''movable assets''.
*A court with ''in personam'' jurisdiction over a person can make orders requiring the person to do or not do things involving certain kinds of things located outside the province, such as assets like bank accounts, stocks, investment accounts, and similar assets that aren't real estate. These assets are called ''movable assets''.
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<blockquote><blockquote><tt>(iv) provide for any other matter in connection with the extraprovincial property;</tt></blockquote></blockquote>
<blockquote><blockquote><tt>(iv) provide for any other matter in connection with the extraprovincial property;</tt></blockquote></blockquote>


The first stumbling block is to figure out whether the court can divide the out-of-province property, and that requires a difficult analysis under ss. 106, 107 and 108 of the act. Assuming the court can make such orders, the next step is to find out whether the order would "enforceable against a spouse" in the place where the property is located. If the <span class="noglossary">answer</span> to both questions is yes, then the court may make an order for the preservation of the foreign property.
The first stumbling block is to figure out whether the court can divide the out-of-province property, and that requires a difficult analysis under ss. 106, 107 and 108 of the act. Assuming the court can make such orders, the next step is to find out whether the order would enforceable against a spouse in the place where the property is located. If the <span class="noglossary">answer</span> to both questions is yes, then the court may make an order for the preservation of the foreign property.


This part of the act is extremely complicated and you should get advice from a lawyer whenever you may need to deal with movable and immovable property located outside of British Columbia.
This part of the ''Act'' is extremely complicated and you should get advice from a lawyer whenever you may need to deal with movable and immovable property located outside of British Columbia.


===Movable assets===
===Movable assets===
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Bank accounts, stocks, investment accounts, and similar assets that aren't real estate are called movable assets. The BC Supreme Court usually has jurisdiction over immovable assets located outside of the province where the owner has attorned to the jurisdiction and accepted the court's authority.
Bank accounts, stocks, investment accounts, and similar assets that aren't real estate are called movable assets. The BC Supreme Court usually has jurisdiction over immovable assets located outside of the province where the owner has attorned to the jurisdiction and accepted the court's authority.


Where a spouse has attorned, the court can make a restraining order stopping the spouse from disposing of movable property located outside of British Columbia under s. 91 of the ''Family Law Act''. Inside British Columbia, a s. 91 order will stop a spouse from dealing with everything that is family property or other "property at issue," including real property. Outside British Columbia, a s. 91 restraining order will only stop a spouse from dealing with movable assets.
Where a spouse has attorned, the court can make a restraining order stopping the spouse from disposing of movable property located outside of British Columbia under s. 91 of the ''Family Law Act''. Inside British Columbia, a s. 91 order will stop a spouse from dealing with everything that is family property or other property at issue, including real property. Outside British Columbia, a s. 91 restraining order will only stop a spouse from dealing with movable assets.


The court can be reluctant to issue a s. 91 order that is intended to deal with assets located outside the province, since in most cases the courts of British Columbia cannot make orders about things located outside the province. In a 2002 case called ''[http://canlii.ca/t/50dw Boyd v. Boyd]'', 2001 BCCA 535, the Court of Appeal confirmed that the court can make ''in personam'' restraining orders that are effective against movable assets located outside the province.
The court can be reluctant to issue a s. 91 order that is intended to deal with assets located outside the province, since in most cases the courts of British Columbia cannot make orders about things located outside the province. In a 2002 case called ''[http://canlii.ca/t/50dw Boyd v. Boyd]'', 2001 BCCA 535, the Court of Appeal confirmed that the court can make ''in personam'' restraining orders that are effective against movable assets located outside the province.
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